Today’s Blog – Thursday 18th August 2016

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Many Australian oil patch readers will be familiar with US company Magellan Petroleum, which for decades has had various interests in Australia (including a quasi dual listing structure here).

Back in the dim and distant 1990s, Magellan was even the subject of a fierce takeover battle between Santos and Origin Energy’s predecessor organisation.  Magellan managed to retain its independence for various reasons then, including some quaint anti-takeover provisions that its then Chairman once boasted to us about (shareholders, who they?!).

Magellan is now entering another interesting stage of its long life – over in the US it is being used as a listed vehicle to back-door a new Gulf of Mexico LNG liquefaction venture called Tellurian Investments led by Cheniere Energy founder Charif Souki and ex-BG Group COO Martin Houston.

It is selling off its few remaining upstream assets (e.g. this week it sold some long held tenements in the onshore UK Weald Basin) and its long suffering shareholders will be no doubt be hoping that Souki can deliver the same massive growth that he did for Cheniere (although not necessarily with the same CEO compensation of up to US$200M p.a….).

Souki still clearly believes that the US gas market can deliver cheap enough gas in the long term to capture global LNG sales.

Australia’s very own BHP also seems to increasingly share that view – with news this week that it is ramping up and hedging forward shale gas production in its Haynesville acreage and can make a 30% RoR in doing so at the current forward strip.

Commodity prices

And still the bull run continues in crude markets – they are up more than 10% in the last 4 days.  Brent closed up nearly 2% at US$49.85 whilst WTI was a bit softer (up ~1%) at US$46.94.

The anti-goldilocks price of US$50 is looking close again.

The weekly EIA report boosted prices – with an unexpected crude inventory draw of 2.5 mmbbls and a healthy gasoline draw of 2.7 mmbbls (somewhat offset by a distillate build of 1.9 mmbbls).

However, the Saudis managed to deliver a mixed message to its recent “OPEC might do something” line – with Reuters reporting possible new records in KSA production in the next few months.

Henry Hub was slightly down at US$2.61.

LNG and international gas

Hawaii’s Governor has recently affirmed his opposition to replacing the State’s current use of dirty crude oil as an electricity generation fuel with clean LNG.  Apparently renewables will do the job instead.  Perhaps if shouted loudly enough?

A Governor with a different – Singaporesque might we say – vision, might see that Hawaii’s location could position it to become a mid-Pacific LNG bunkering and trading hub.  For instance, US cargoes could go there, supply local needs, then move to capture optimal short term Asian markets.

Company news – Origin Energy (ORG)

ORG released its annual results today.  Amidst the large amount of data therein, we managed to pick-up a couple of snippets of potential interest:

  • Apparently ORG can achieve cost savings of US$0.15/BOE in its coal seam gas assets by injecting methanogens into late life highly permeable coal seams.  That is, microbial activity (eating carbon and “emitting” methane) can make that sort of material difference, which we find fascinating.
  • ORG plans to go ahead and frack its recently drilled wells in the Northern Territory’s Beetaloo Basin.  No backwards step (publicly at least) was taken with respect to the likely incoming new Government’s plans to impose a moratorium on fracture stimulation.  Has ORG done a deal or is it preparing for a fight?

Company news – Santos (STO)

STO’s Chairman recently used the placement of a story with a friendly journalist in The Australian newspaper to flag his likely retirement at the company’s next AGM in May 2017.

There are no obvious successors in the ranks of STO’s other NEDs (although some of them might disagree with our views on that matter….), so the company might well appoint a successor in coming months.

Quote of the day

Magellan Petroleum once had a long running dispute over drilling under land in England owned by controversial Egyptian “billionaire” Mohammad al-Fayed (father of the ill-fated Dodi Fayed who died with Princess Diana).

Who said the oil patch was boring!  A typical colourful quote from Fayed pere:

“I have two Filipino nannies who have British passport and not me. I don’t need British passport. When you were running around in an animal skin, my ancestors were building the pyramids.”


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